CAF-5 · Chapter 16 · Question 4 of 10
Saturn Limited imports raw materials with the following usage and lead time parameters: Maximum usage is 5,000 units per month, minimum usage is 3,000 units per month, maximum lead time is 4 months, and minimum lead time is 2 months. Using the standard formula, what should be the Re-order Level (ROL) for this raw material?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 20,000 units
Explanation
The standard formula for establishing a Re-order Level to prevent stock-outs under maximum expected conditions is: Maximum Usage × Maximum Lead Time. Calculation: 5,000 units × 4 months = 20,000 units.
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